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Free Gas and Irrational Behavior

Don't waste time sitting in line when you can make big bucks instead.

Allstate Insurance(NYSE:ALL) recently ranked American cities according to how safe their drivers are. The winner? Milwaukee. The prize? Allstate gave away free gas for a day a few weeks ago. The result? Long lines of people waiting for hours, disputes and scuffles, disorderly conduct, some arrests, and even some police officers rushed to the hospital. Well, any publicity is good publicity. right, Allstate?

Here's what's interesting, though. The people who participated, many arriving the night before the 6 a.m. opening of the gas station, weren't behaving entirely rationally. What were they getting? With gas prices hovering a little north of $3 per gallon in the region, the typical driver would likely put around 10 gallons, or $30 worth of gas, in his or her vehicle. So all that, for $30.

"If I announced that I was doing the same thing, but instead of giving out gas, was going to give $50 to each car that came, do you think there would be more, fewer, or the same number of people willing to wait more than 6 hours overnight (and sleep in their car)? I think there'd be fewer. To make the exercise easier, suppose I gave out the exact amount of money needed to fill your tank at a gas station just around the corner from me. More, fewer, or the same number of takers? Remember, this is more valuable, because you can use the money on anything, not just gas. (Although gas consumption is probably inelastic enough that this difference is negligible.) Still, I'm betting there would be far fewer people. (Unless I pitched it as a 'free gas' giveaway...)"

What's going on here? Well, it's likely an overreaction on our part to the word "free." After all, in some sense, this gas wasn't free. You paid for it by giving up many hours to wait, and your time is indeed worth something. A commenter at the blog brought up the annual ice cream giveaway by Unilever's (NYSE:UL) Ben & Jerry's shops. What each consumer gets is around $3 worth of ice cream. Would you go out of your way for three one-dollar bills? Maybe not, but there's a good chance you'll go out of your way for "free ice cream."

Grabbing free moneyMaybe this phenomenon could be put to good use, instead of somewhat silly use. In an article titled "Want Some Free Money?" a few months ago, I listed some ways that we can get free money -- ways that many of us ignore. For example, I pointed out:

"When employers match some of your contributions to your 401(k) plan, that's free money. Imagine that your company matches 25% of your contributions up to $6,000 per year. If so, you should aim to contribute at least $6,000 to your account to grab as many free dollars as possible -- in this case, $1,500. That's not chicken feed."

In another article, I addressed how to get better interest rates on your short-term savings from outfits such as Countrywide Financial(NYSE:CFC), Bankrate.com(NASDAQ:RATE), and E*Trade(NYSE:ET). Doing so can boost your income -- essentially netting you free money.

Imagine if you spent an hour looking into where your savings would grow the fastest. You might end up making $300 or more on that action alone. Wouldn't that be a better use of your valuable time than sitting in line for eight hours waiting for $30 of "free gas"?

Another way to get free money is to use credit cards that pay 1% to 5% rebates on certain purchases, such as gasoline and groceries. I myself have racked up more than $250 in rebates this way. Card-issuers that offer such cards include Citigroup(NYSE:C) and American Express(NYSE:AXP).

Grab great tipsWe can help you zero in on ways to easily save yourself big bucks as you make smart financial decisions. I invite you to check out our brand-new personal finance newsletter, GreenLight. I have great respect for its two editors, and I'm certain you'll get a lot out of the service.

Author

Selena Maranjian has been writing for the Fool since 1996 and covers basic investing and personal finance topics. She also prepares the Fool's syndicated newspaper column and has written or co-written a number of Fool books. For more financial and non-financial fare (as well as silly things), follow her on Twitter... Follow @SelenaMaranjian